bailouts, budget deficits, Bush $3 Trillion dollar budget, cricketdiane, economic crisis, economic projections and forecasting by US experts 2007 - 2009, Economics, Economy, Recession - Economic Depression, trillions of dollars US bailouts, US Economy
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Chicago Fed’s Evans mirrors Bernanke no-recession forecast
02.14.08, 2:02 PM ET
NEW YORK (Thomson Financial) – The Chicago Federal Reserve Bank has an economic index that is now signaling a greater than 50% chance of a recession, but the bank’s new President Charles Evans would not, in a speech Thursday, go beyond the same slow growth/late 2008 recovery outlook that Fed Chairman Ben Bernanke delivered earlier in the morning.
‘Our outlook at the Chicago Fed is for real GDP to increase in the first half of the year, but at a very sluggish rate,’ Evans said in remarks prepared for financial analysts in Chicago. ‘However, we expect growth will pick up to near potential by late in the year and continue at or a bit above this pace in 2009.’
That is essentially the same forecast Chairman Bernanke gave in congressional testimony Thursday morning, and it is relatively optimistic compared to some, though not all, private forecasters who now expect a recession.
Even the Chicago Fed’s own National Activity Index three month moving average fell to -0.67 in December, and Evans said based on research he did as a staff economist there, ‘readings like this indicate a greater than 50% probability that the economy is in a recession.’
There are reasons to discount this probability, Evans pointed out. Retail sales posted a modest increase in January, and the forward-looking data on orders for capital goods ended last year on a positive note.
Still, ‘it is clear that the U.S. economy currently faces substantial headwinds.’
And there are forces pushing growth against those headwinds, the Fed itself not least of them.
‘At 3%,’ Evans said, ‘the current federal funds rate is relatively accommodative and should support stronger growth. Indeed, because monetary policy works with a lag, the effects of last fall’s rate cuts are probably just being felt, while the cumulative declines should do more to promote growth as we move through the year.’
Then, too, the fiscal stimulus checks should be boosting consumer spending in the second half of the year.
The Chicago Fed’s forecast is for inflation to moderate over the next two years. ‘Slower growth in 2008 will limit price increases somewhat. Furthermore, futures markets point to a peaking of energy and commodity prices,’ according to Evans. And inflation expectations are still mostly contained.
For financial markets, despite the improvement in liquidity, overall credit conditions are still strained, and the lending environment is much less receptive to risk-taking than it was prior to last August.
‘So we are in the midst of a period of soft economic activity. We also are in a period of heightened uncertainty about the economic outlook,’ he concluded.
Bush Proposes First $3 Trillion Budget
Sunday, February 03, 2008
By MARTIN CRUTSINGER, AP Economics Writer
WASHINGTON — In the nation’s first-ever $3 trillion budget, President Bush seeks to seal his legacy of promoting a strong defense to fight terrorism and tax cuts to spur the economy. Democrats, who control Congress, are pledging fierce opposition to Bush’s final spending plan _ perhaps even until the next president takes office.
The 2009 spending plan sent to Congress on Monday will project huge budget deficits, around $400 billion for this year and next and more than double the 2007 deficit of $163 billion. But even those estimates could prove too low given the rapidly weakening economy and the total costs of the wars in Iraq and Afghanistan, which Bush does not include in his request for the budget year beginning Oct. 1.
Last year, when Democrats were newly in the majority, there were drawn-out veto struggles. This year’s fights could be worse because it is an election year.
As in past years, Bush’s biggest proposed increases are in national security. Defense spending is projected to rise by about 7 percent to $515 billion and homeland security money by almost 11 percent, with a big gain for border security. Details on the budget were obtained through interviews with administration officials, who spoke on condition of anonymity until the budget’s release.
The bulk of government programs for which Congress sets annual spending levels would remain essentially frozen at current levels. The president does shower extra money on some favored programs in education and to bolster inspections of imported food.
/* Bush’s spending proposal would achieve sizable savings by slowing the growth in the major health programs _ Medicare for retirees and Medicaid for the poor. There the president will be asking for almost $200 billion in cuts over five years, about three times the savings he proposed last year.
There is no indication Congress is more inclined to go along with this year’s bigger cuts; savings would come by freezing payment rates for most health-care providers for three years.
In advance, Democrats attacked the plan as a continuation of failed policies that have seen the national debt explode under Bush; projected surpluses of $5.6 trillion wiped out; and huge deficits take their place, reflecting weaker revenues from the 2001 recession, the terrorism fight, and, Democrats contend, Bush’s costly $1.3 trillion first-term tax cuts.
“This administration is going to hand the next president a fiscal meltdown,” Senate Budget Committee Chairman Kent Conrad D-N.D., said Sunday in an interview with The Associated Press. “This is a budget that sticks it to the middle class, comforts the wealthy and has a set of priorities that are not the priorities of the American people.”
Bush’s budget reflects the outlines of a $145 billion stimulus plan that the president is urging Congress to pass quickly to combat the growing threat of a recession.
While the House passed a stimulus bill close to the president’s outline, Senate Democrats are trying to expand the measure to include cash relief for older people and extended unemployment benefits.
Bush’s five-year blueprint makes his first-term tax cuts permanent while still claiming to get the budget into balance by 2012, three years after he leaves office.
Republicans are pledging to protect those first-term tax cuts. But Democrats, including the party’s presidential candidates, want to retain the tax cuts that benefit lower and middle-income taxpayers while rolling back the tax cuts for the wealthy.
Democrats say Bush’s budget is built on flawed math. Beyond 2009, the budget plan does not include any money to keep the alternative minimum tax, which was aimed at the wealthy, from ensnaring millions of middle-income people. It also includes only $70 billion to fight the wars in Iraq and Afghanistan in 2009, just a fraction of the $200 billion they are expected to cost this year.
Reflecting strong lobbying by Secretary of State Condoleezza Rice, Bush’s budget includes a request to hire nearly 1,100 new diplomats to address severe staffing shortages and put the State Department on track to meet an ambitious call to double its size over the next decade.
In a change from last year, the administration is also seeking to increase spending on the State Children’s Health Insurance Program by $19.7 billion over the next five years. That request is midway between the $5 billion increase requested by Bush last year and the $35 billion increase in bills passed by Congress but vetoed by Bush in October and December.
Bush also proposes boosting spending in some areas of education such as Title I grants, the main source of federal support for poor students. But at the same time, Bush seeks to eliminate 47 other education programs that are seen as unnecessary including programs to encourage art in the schools, bring low-income students on trips to Washington and provide mental health services.
Deficits in the range of $400 billion would be very close to the all-time high imbalance, in dollar terms, of $413 billion set in 2004 during Bush’s first term. Many private economists are forecasting that the deficits this year and next will surpass the 2004 record in large part because they believe the country is heading into a recession.
Stanley Collender, a budget expert with Qorvis Communications, a Washington consulting firm, said it is very likely that the next budget year will begin with the government operating on a short-term spending measure. In that scenario, Democrats, unable to enact their spending priorities over Bush’s vetoes, would mark their time hoping the country will elect a Democrat to succeed Bush.
The $3 trillion Bush’s proposes spending in 2009 would be the first time that milestone has been reached. Bush also presided over the first budget to hit $2 trillion, in 2002. It took the government nearly 200 years to reach the first $1 trillion budget, which occurred in 1987 during the Reagan administration.
Copyright 2008 The Associated Press.
… the real world in 2009 when a slowdown and it will only be a slowdown and not a recession … Evening Standard – London; September 16, 2009 ; 358 words …
The $935 million deficit in the budget through mid-2009 means state leaders … A brief, mild recession that will ease as Minnesotans begin spending money …
Feb. 13, 2008, 1:24 p.m. EST
Wait till 2009
Home builders say gloom not going to dissipate in 2008
By Steve Kerch, MarketWatch
ORLANDO (MarketWatch) — The housing market will not stabilize until late in 2008 at best, with sales, starts and prices continuing their slide through most of the year, economists attending the International Builders Show here said Wednesday.
Housing starts, which fell 30% in 2007, could drop nearly that much again in 2008, said David Seiders, chief economist for the National Association of Home Builders. His forecast calls for new-home sales to fall to a 25-year low of 632,000 units in 2008, down more than 20%. Existing-home sales will drop as well, to a 20-year low, of 4.33 million units.
And while home-price trends will vary across the country, the national median price is projected to drop again in 2008. When housing does finally stabilize, probably in mid-2009, prices will have fallen about 15% from their peak in mid-2006, said David Berson, chief economist for the PMI Group Inc.
“The housing market, continuing the dramatic contraction that has been developing over the last two years, is putting a big hit on overall economic activity,” Seiders said. “The economy is in rather weak condition at the moment. We think the economy will avoid an actual recession, but we had a weak fourth quarter, we’re going to have a weak first quarter and the second quarter is not going to be so hot either.”
Seiders sees a pickup in housing activity for 2009, with sales and starts rebounding, although still clocking in below 2007 levels. But he said there are plenty of downside risks to that forecast.
“This easily could spiral downward the way things feel now,” he said.
Frank Nothaft, chief economist for Freddie Mac, thinks parts of the country are already in recession and that there is “clearly a risk of recession” nationwide. Even with the economic stimulus package passed by Congress that will put tax-rebate checks into the hands of millions of Americans, Nothaft said there will be little impact until late in the year.
“Even if we get an economy that is at best flat, it will be another negative for the housing market,” Berson told reporters. “You have to remember that all the problems we’ve had in housing finance have come in an expanding economy.”
A large number of homes remain for sale across the country, with vacant homes for sale at a record high, Berson noted. That will continue to place a major drag on home prices, which are likely to fall nationally in 2009 as well as 2008, he predicted, although more markets around the country should be seeing home-price increases in 2009.
“Home prices have fallen significantly in some parts of the country and will fall more,” Berson said. That has created a situation where foreclosures and mortgage delinquencies could jump substantially.
“You’ve heard about homeowner defaults on loans for which they can make their payment but where the value of their home has fallen below what they owe on the mortgage. We don’t have figures on that … but if there has been a behavioral change on the part of homeowners, and we don’t know if that is happening, it is possible credit losses could go up a lot.”
Credit crunch continues
Seiders said in addition to housing, one of the biggest drags on the economy is the credit crunch in financial markets that was spurred by massive problems in subprime lending. That has crimped the options not just for homeowners and buyers in the subprime market, but for those who use any kind of loan that is not “conforming,” meaning it fits the guidelines to be purchased by government sponsored mortgage enterprises Fannie Mae and Freddie Mac.
“The best news I can share is that if you are a prime borrower looking for a conforming loan, able to provide full documentation and make a down payment, things are looking pretty good,” Nothaft said, noting that the 30-year fixed-rate conforming mortgage is expected to average 5.5% this year.
“The problem is, a lot of people can’t make those requirements,” he said.
Seiders believes there will have to be a second round of economic stimulus this year, and he said the home builders would be pushing for some kind of temporary tax credit directed at buyers who purchase houses out of the existing vacant inventory.
“What we really need is something to get housing sales going again so this thing doesn’t degenerate into an absolute debacle,” he said. “The home-buying side has to be improved first before any of the other measures will rebound.”
Apparently with an eye on another round of stimulus, on Tuesday the National Association of Home Builders Political Action Committee, Build-PAC, said it was halting all approvals and disbursements of contributions to federal congressional candidates and their PACs until further notice.
“The NAHB Build-PAC board of trustees felt that over the past six months Congress and the administration have not adequately addressed the underlying economic issues that would help stabilize the housing sector and keep the economy moving forward,” said Brian Catalde, NAHB president. “More needs to be done to jump-start housing and ensure the economy does not fall into recession.”
Builders were not in a particularly optimistic mood in the days leading up to their annual convention here. The most recent NAHB/Wells Fargo Housing Market Index reading, a measure of builder confidence, rose only slightly in January after hitting a record low in December. According to the January reading, about one in five builders believe that the market is healthy.
Although figures aren’t finalized until after the show, planners said that the number of attendees who registered in advance is down about 12% compared with last year, reflecting the hard times in the industry. Still, more than 1,900 exhibitors are here hawking their wares; for many the show accounts for the majority of their sales for the year.
Steve Kerch is assistant managing editor and personal finance editor of MarketWatch in Chicago.
I’d guess March 2009. Alternatively, we’re not in a recession now and we’re not going to fall into one. What’s your guess?
No recession, just slowing, White House economist predicts … find … International Herald Tribune 08-12-2009 White House counteroffensive in works on …
Feeble growth projected for Georgia in 2008
‘The only solution is time,’ says GSU’s economy expert
By MICHAEL E. KANELL
The Atlanta Journal-Constitution
Published on: 02/27/08
The local economic engines are shifting into low gear, but they will stay out of reverse, predicted Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University.
Georgia and Atlanta will grow at a tepid pace through the year, while still outperforming the national economy, he said during the center’s quarterly conference Wednesday.
“It is going to be at least 2009 before we come close to normalcy,” Dhawan said. “And 2010 is going to be a normal year.”
Among the drags on growth: a near-freeze in credit markets, high energy prices and a battered housing market that has undermined consumer finances.
Yet Georgia will avoid the worst of the damage, he predicted.
Metro Atlanta will add 19,100 jobs this year, accelerating to 45,400 next year and 66,100 in 2010, Dhawan said.
Atlanta will account for the lion’s share of additions to Georgia payrolls. The state will add about 27,900 jobs this year and 71,000 in 2009. With nearly 4.2 million jobs in the state, the impact of that new hiring will be modest, he said. “If your kid is going to graduate in 2009, there is a high probability that he will be living in your basement.”
All the state’s metro areas except Dalton will add jobs during the next two years, he said. Less encouraging is the mix of jobs: Just 6 percent of the jobs added in Georgia this year will pay more than $45,000 a year, he said.
Nationally, the economy will edge perilously close to recession, Dhawan said.
Gross domestic product will not grow this quarter. Next quarter, GDP will drop at a 0.2 percent pace. For the year, the economy will eke out an anemic 1.1 percent growth rate, he said.
Dhawan’s view has grown decidedly more bearish since his November conference. At that session, he acknowledged the headwinds hitting the economy but predicted a pickup in growth by mid-2008. During the center’s August conference, Dhawan projected expansion of Georgia payrolls by 79,700 jobs in 2008, with Atlanta’s economy accounting for 59,100 positions. That was roughly three times the growth prediction made Wednesday.
Among forecasters, Dhawan now sits close to the middle of the pack: Slightly more than half the nation’s forecasters say the economy will avoid recession. About 45 percent say recession is either here or imminent, while pessimists warn it will be painful and prolonged.
For instance, New York University’s Nouriel Roubini says recession will last about a year and a half.
While popularly defined as two successive quarters of shrinking GDP, recession’s definition is actually more nuanced. In fact, the 2001 recession did not include two consecutive down quarters. The labeling of a recession falls to the National Bureau of Economic Research. That designation usually comes months after the downturn begins.
While the NBER has issued no proclamations, some signals are flashing red: Purchases of big-ticket goods have dropped, consumer confidence has plunged, manufacturing reports have turned down and household spending has been weak. Last month, the economy lost jobs for the first time in four years.
The broadest economic measure, GDP, last quarter slid to growth of less than 1 percent.
Even if GDP can stay positive, economists say that anything close to zero growth can feel like tough times in the labor market. Regardless of the official label, jobs are harder to come by, pay boosts are anemic and layoffs rise.
“Does it make any difference whether it’s a recession or not technically?” Dhawan said.
Dhawan said the key problem for growth remains credit. Loans are the lubricant of a growing economy.
The Federal Reserve has poured money into the system. Yet that has not persuaded banks to take chances, Dhawan said.
Many lenders have been spooked by fears that billions of dollars in bad loans have percolated into various investments. Many institutions have been forced to take huge write-downs, while a dread of worse losses has permeated decisions about making more loans.
The result is a chill in borrowing for business as well as for home purchases, Dhawan said. “It’s not a problem of ‘Can I afford it or not?’ It’s a problem of ‘Can I even get the loan?’ ”
Still, the most recent data show a tentative recovery in the markets for those investments, he said. “That is why I am not predicting a deeper recession or a prolonged slowdown.”
(from February 2008)
(from today’s news – 03-12-10)
… turnaround that will gain steam in 2009, an economic forecast says. … Manufacturers will flirt with recession during the first six months of 2008 …
Posted date: 2/20/2008
Forecast: County Should Avoid Recession
By HOWARD FINE
Los Angeles Business Journal Staff
Los Angeles County should escape a recession in 2008 and 2009, according to a forecast to be released this morning from the Los Angeles County Economic Development Corp.
Although more slow growth lies ahead as the housing slump continues, enough sectors of the local economy are showing modest growth that the area should sidestep a downturn.
The LAEDC report forecasts that L.A. County should add about 30,000 jobs in 2008 for a sluggish growth rate of 0.7 percent. That’s the same pace as 2007, when 30,600 jobs were created.
“We’re on a two-track economy right now,” said Jack Kyser, chief economist with the LAEDC. “Housing, related activity and financial services are all struggling, while other sectors, chiefly tourism, international trade and health services, are doing modestly better.”
But Kyser said several wild cards are on the horizon that could slow job growth even further or even tip the county into job losses, the definition of a localized recession. Chief among these is the possibility of labor strife in several key industries, including entertainment and trade. Both the Screen Actors Guild and International Longshore and Warehouse Union are negotiating contracts.
Another wild card is the possibility of more shocks to the already beleaguered financial sector that could worsen the credit crunch.
If these setbacks don’t materialize, Kyser said growth should pick up later this year as the Federal Reserve’s interest rate cuts and the national economic stimulus package signed last week kick in. The forecast projects 50,000 jobs being added to the L.A. County market in 2009, for a growth rate of 1.2 percent.
If the projections for 2008 and 2009 hold, then later this year, the county should finally surpass its record employment level of 4,135,700 non-farm payroll jobs reached in 1990. “That’s a sorry record of 18 or 19 years without hitting a new employment high, given the economic base that we have,” Kyser said.
White House: Unemployment to stay near 5%
Slower job growth could keep unemployment rate near current level through 2013 – Bush’s Council of Economic Advisors.
|President Bush receives the economic forecast of his council of Economic Advisors Monday.|
NEW YORK (CNNMoney.com) — The Bush administration’s top economists see annual unemployment remaining just below 5% through 2013, meaning an extended period when the jobless rate would top the full-year average in six of the last 10 years.
The annual outlook of the president’s Council of Economic Advisors, released Monday, also projects that the economy will keep growing this year and avoid a recession. In fact, real gross domestic product is forecast to rise by a healthy 2.7% when comparing the fourth quarter of this year to a year earlier.
But the report projects the full-year unemployment rate will rise to 4.9% in 2007, up from 4.6% each of the last two years. And it expects the unemployment rate will stay at the 4.9% rate in 2009 before starting to retreating slightly to 4.8% in each of the following four years.
Edward Lazear, chairman of the council, said at a news conference that the downturn in some economic readings since the forecasts were made in November could result in a lowering at its mid-year update. But he said he’s also hopeful that interest rate cuts by the Federal Reserve and the recently passed economic stimulus package could keep the economy growing at close to this forecast.
While the administration is always concerned about unemployment, the current level is low by historic standards, Lazear said.
“Even if we go with the most aggressive notion of what is a high unemployment rate – 5.7% – we’re still quite a ways from that right now,” he said. “I think by anybody’s measure 4.9% is still low unemployment.
“I would argue that the 4.9% unemployment that we have now still reflects a relatively tight labor market,” he added. “Obviously last month’s numbers were not as strong. That’s something we’re going to keep watching. I think that the concerns that people looking at the economy have are concerns we share as well.”
The seasonally-adjusted monthly unemployment rate, which had been as low as 4.4% in March, jumped to 5% in December before retreating slightly to a 4.9% reading in January. But that month also saw employers shave 17,000 jobs from U.S. payrolls.
The CEA forecast also sees soft job growth in the next six years. Average monthly job growth is expected to be 109,000 a month on a fourth-quarter-to-fourth quarter basis. That growth pace would be down 15.5% from 2007 levels and down 43% from the growth reported in 2006.
And while the CEA forecast sees 2009 job growth returning to 2007 levels, it then sees it falling off again in 2010 and for the following three years, falling to only an average gain of 92,000 a month by 2013. Rising retirements by baby boomers is one of the reason for the slower job growth going forward, according to the report.
Unemployment was between 4% and 4.7% in the period from 1997 though 2001, the final year being the period that included the last recession. It then spiked above 5% the next four years, reaching to 6% by 2003 before starting the decline that brought it down to 4.6% the last two years.
Bush received the report from his economic advisers in a White House ceremony at which he said he approved of the $170 billion economic stimulus package passed by Congress last week. He said that he looked forward to signing the legislation to give most taxpayers hundreds in tax rebates, although he repeated his earlier contention that the economy is sound.
“This report indicates that our economy is structurally sound for the long term, and that we’re dealing with uncertainties in the short term,” Bush said. He said that in addition to the economic stimulus plan, he believes it is important for Congress to make permanent tax cuts passed in 2001 and 2003 that are due to expire beginning next year.
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White House sticks with economic optimism in annual report to Congress UPDATE
02.11.08, 5:25 PM ET
(updates with White House briefing)
WASHINGTON (Thomson Financial) – The White House stuck with the same, by now relatively optimistic, economic forecast it made last November when it released the annual Economic Report of the President to Congress on Monday.
‘I don’t think we’re in a recession,’ and the administration is not forecasting one, declared Edward Lazear, Chairman of the Council of Economic Advisers (CEA) and President George W. Bush’s chief economist.
The official forecast prepared by the CEA is still for 2.7 pct gross domestic product growth in 2008, while both the Congressional Budget Office and the Blue Chip Economic survey have now cut back their predictions to 1.7 pct growth.
Lazear barely defended the higher growth number in his briefing for reporters, describing it more like a simple ‘plug-in’ for the prediction model.
‘We do only two formal forecasts a year,’ he said, and the 2.7 pct growth number comes from the November forecast. ‘Obviously there have been new data since then that might alter our forecast next time,’ he said. ‘Next time’ in the administration’s forecasting schedule will be June.
Private economists are predicting an actual recession in growing numbers. Among Blue Chip economists, 20 pct think there will be at least one quarter of GDP contraction, and private forecasters are approaching a consensus view of a 50-50 recession chance.
The White House has seen the same data as the other forecasters, Lazear said, and that was the motivation behind the stimulus package. ‘We were worried about lower growth and as a result of the we decided it was time to act.’
Later this week the president is expected is expected to sign the stimulus package, which includes rebates of 600 usd to 1,200 usd to most taxpayers and 300 usd checks to disabled veterans, the elderly and other low-income people.
‘The economy is structurally sound and we are dealing with the uncertainties,’ Bush said in a brief appearance before cameras today.
The 2008 Economic Report says ‘the period of somewhat slower-than-normal growth that began in 2007 is likely to continue into 2008,’ with slow growth in the first half of the year and recovery in the second half.
For 2008, on a Q4 to Q4 basis, the White House forecast includes the 2.7 pct GDP growth rate and a 2.1 pct increase in the Consumer Price Index (CPI). It projects an average 4.9 pct unemployment rate and average payroll growth of 109,000 jobs per month.
For 2009, the forecast is 3.0 pct economic growth with 2.1 pct CPI inflation. Payroll growth would increase to an average of 129,000 jobs per month but the unemployment rate would remain at 4.9 pct.
There are parts of the Economic Report publication that are hard to reconcile with the the faster-growth scenario. One is the projected decline in average monthly growth of payroll jobs from 129,000 in 2007 to 109,000 this year.
Also, for the economy to achieve a 2.7 pct Q4 to Q4 growth rate for the year as a whole, a one percent-plus first half rate would have to be followed by a three-per cent plus rate in the second half. That puts a lot of reliance on the Fed’s rate cuts and the stimulus package.
Lazear today declined to discuss whether an additional stimulus package might be needed, saying only that the current one was ‘the right thing to do.’
In its January forecast, the Congressional Budget Office predicted both slower growth and higher inflation and unemployment for 2008. It sees 1.7 pct GDP growth, 2.9 pct CPI inflation and 5.1 pct unemployment.
For 2009, the CBO growth outlook is slightly slower at 2.8 pct, with 2.2 pct for CPI and higher unemployment at 5.4 pct.
In Congressional testimony last week, Treasury Secretary Henry Paulson said the 2.7 pct growth assumption probably makes the administration’s 2008 federal deficit forecast of $410 billion about $15 billion to $20 billion smaller than it would be if the economy grew at the slower 1.7 pct rate.
More broadly, the Economic Report of the President says the US economy has been and still is in a period of ‘rebalancing,’ in which ‘higher growth of non-residential investment and exports offset the lower rates of housing investment.’
Looking longer term, the CEA sees a long-lasting economic slowdown for the US. The report says ‘potential GDP growth is expected to slow in the medium term as productivity growth reverts toward its long-run trend (about 2.5 pct per year), and to slow further during the period from 2008 to 2011 as labor force growth declines due to the retirement of the baby-boom generation.’
” I do not think the United States is in a recession,” said President Ford stoutly this afternoon, looking at a half year of declining real growth through …
WASHINGTON — President Ford called in VicePresident Nelson Rockefeller and other advisers Saturday for an anti-recession strategy session which …
Nixon’s New Worries About Recession
Time Magazine – Time – Mar 30, 1970
Nixon’s New Worries About Recession. One trouble with the economic strategy practiced by Richard Nixon is that it makes awkward politics for his party. ..
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A US recession began in December 2007, a panel of economists charged with the official designation of business cycles said Monday. …
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ECRI chief sees no sign of US recession
Says indices show India healthier than America currently
New York-based Economic Cycle Research Institute has had an extended record of correctly predicting cyclical turning points in growth and inflation of economies.
The institute, started by Geoffrey Moore, once Alan Greenspan’s statistics professor, doesn’t proffer point forecasts such as 8.3% GDP growth expected in the first quarter, etc.
Instead, it tells when a cyclical turn will occur in an economy using what it calls are “reliable sequences of events”..
Lakshman Achuthan, managing director of the institute, told Raj Nambisan and Vivek Kaul in an email interview why, at the current stage of US economic cycle, major stock market corrections tend to be rare, and do not send important economic signals.
Are business and stock market cycles intertwined at all points in time? Is there a case for one leading the other? How does the relationship work?
Generally, yes. This is because stock prices are related to profits growth (which depends on the pace of economic activity) and interest rates (also dependent on economic growth). Stock prices usually have a short lead of a quarter or two over the economy, but they can give false signals so it is better to use a well constructed leading index instead for forecasting the cycle.
You have said in a recent report that sizeable stock price declines are probably not imminent, but even if they do occur, are unlikely to have important economic implications. Is this true even in the context of emerging markets like India?
No. The study we have done is for the US market specifically, but the general theory does hold for India too. Our Indian Leading Index is actually much healthier than the US. So that is in fact supportive of corporate profits, and therefore stock prices.
Stock markets have always been an indicator of where the economy is heading. What makes you say, that there is no longer a connect between stock markets and economic cycles. Would that be true in the case of India as well?
There is a connection between stock prices and economic cycles. Stocks are a “short-leader” of the economy. Our leading indexes look at other, unrelated leading indicators of the economy, some of them with longer leads than stock prices.
It is on the basis of these leading indexes that we gauge the “risk” associated with stocks, and this does hold for India.
Is the current Sensex correction of 1900 points in a week in India a harbinger of things to come?
This seems to be something more technical and having to do with a regulation as opposed to a harbinger of slower economic growth ahead. As indicated, Indian economic growth looks to improve over coming quarters.
You’ve said that corrections tend to be nastier when the ECRI leading indices point to slowing growth. You haven’t flagged a US recession yet. Still, do you see growth slowing with the subprime issue yet to fully pan out
Yes, US growth is slated to have a broadbased slowdown affecting all major sectors of the economy (services, manufacturing and construction).
However, growth is slowing from 3.8% growth in Q2, and roughly 3% growth in Q3 (we get the data on October 31) so there is room to slow without recession. The credit crisis is part of the reason for the slowing.
In the last two months, Alan Greenspan, former Federal Reserve chief, has reduced the odds of a US recession from one-third chance to one-half now.
ECRI hasn’t given its verdict yet. Is there a perceptible decrease in your estimates of a US recession in the last 2-3 months?
Over the past year, the consensus recession probability estimate has hovered around 25%, but it jumped this summer to somewhere between a third and a half.
In truth, a 50-50 probability of recession implies that a forecaster is clueless about whether or not a recession is likely, and a coin flip would be just as accurate. Edging the recession probability down closer to one-third is not much better.
While the recession probability is never zero, ECRI’s indicators suggest that the recession risk today is much lower than the consensus believes.
ECRI’s recession forecasts have always been based on objective leading indexes, rather than on plausible parallels with the past bolstered by gut feel and selective statistics.
Based on that time-tested approach, we do not see a recession at hand. When recession risks actually rise, that should show up first in our leading indexes.
Will the ARM mortgage resets that intensify from November aggravate the subprime crisis, and therefore increase the chances of a US recession?
Perhaps, but if so our leading indexes will pick that up. It is notable that Libor rates have declined since the Fed rate cut so the resets are not as bad as they were in late August.
Is there a timeline where, based on the ECRI leading indices, you can presage the weakest or most volatile period in the short-term for the Dow?
Yes, if and when our leading indexes signal a recession (they do not say that today).
Most major bear markets are associated with recessions.
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July 15, 2008, 11:24 a.m. EDT · Recommend (1) · Post:
Text of Bernanke’s testimony
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WASHINGTON (MarketWatch) — Here is the prepared testimony of Federal Reserve Chairman Ben Bernanke at the Senate Banking Committee on Tuesday.
“Chairman Dodd, Senator Shelby, and members of the Committee, I am pleased to present the Federal Reserve’s Monetary Policy Report to the Congress.
“The U.S. economy and financial system have confronted some significant challenges thus far in 2008. The contraction in housing activity that began in 2006 and the associated deterioration in mortgage markets that became evident last year have led to sizable losses at financial institutions and a sharp tightening in overall credit conditions. The effects of the housing contraction and of the financial headwinds on spending and economic activity have been compounded by rapid increases in the prices of energy and other commodities, which have sapped household purchasing power even as they have boosted inflation. Against this backdrop, economic activity has advanced at a sluggish pace during the first half of this year, while inflation has remained elevated.
‘The possibility of higher energy prices, tighter credit conditions, and a still-deeper contraction in housing markets all represent significant downside risks to the outlook for growth.’
Ben Bernanke, Federal Reserve chairman
“Following a significant reduction in its policy rate over the second half of 2007, the Federal Open Market Committee (FOMC) eased policy considerably further through the spring to counter actual and expected weakness in economic growth and to mitigate downside risks to economic activity. In addition, the Federal Reserve expanded some of the special liquidity programs that were established last year and implemented additional facilities to support the functioning of financial markets and foster financial stability. Although these policy actions have had positive effects, the economy continues to face numerous difficulties, including ongoing strains in financial markets, declining house prices, a softening labor market, and rising prices of oil, food, and some other commodities. Let me now turn to a more detailed discussion of some of these key issues.
“Developments in financial markets and their implications for the macroeconomic outlook have been a focus of monetary policy makers over the past year. In the second half of 2007, the deteriorating performance of subprime mortgages in the United States triggered turbulence in domestic and international financial markets as investors became markedly less willing to bear credit risks of any type. In the first quarter of 2008, reports of further losses and write-downs at financial institutions intensified investor concerns and resulted in further sharp reductions in market liquidity. By March, many dealers and other institutions, even those that had relied heavily on short-term secured financing, were facing much more stringent borrowing conditions.
“In mid-March, a major investment bank, the Bear Stearns Cos., was pushed to the brink of failure after suddenly losing access to short-term financing markets. The Federal Reserve judged that a disorderly failure of Bear Stearns would pose a serious threat to overall financial stability and would most likely have significant adverse implications for the U.S. economy. After discussions with the Securities and Exchange Commission and in consultation with the Treasury, we invoked emergency authorities to provide special financing to facilitate the acquisition of Bear Stearns by J.P. Morgan Chase & Co. In addition, the Federal Reserve used emergency authorities to establish two new facilities to provide backstop liquidity to primary dealers, with the goals of stabilizing financial conditions and increasing the availability of credit to the broader economy.1 We have also taken additional steps to address liquidity pressures in the banking system, including a further easing of the terms for bank borrowing at the discount window and increases in the amount of credit made available to banks through the Term Auction Facility. The FOMC also authorized expansions of its currency swap arrangements with the European Central Bank and the Swiss National Bank to facilitate increased dollar lending by those institutions to banks in their jurisdictions.
“These steps to address liquidity pressures coupled with monetary easing seem to have been helpful in mitigating some market strains. During the second quarter, credit spreads generally narrowed, liquidity pressures ebbed, and a number of financial institutions raised new capital. However, as events in recent weeks have demonstrated, many financial markets and institutions remain under considerable stress, in part because the outlook for the economy, and thus for credit quality, remains uncertain. In recent days, investors became particularly concerned about the financial condition of the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. In view of this development, and given the importance of these firms to the mortgage market, the Treasury announced a legislative proposal to bolster their capital, access to liquidity, and regulatory oversight. As a supplement to the Treasury’s existing authority to lend to the GSEs and as a bridge to the time when the Congress decides how to proceed on these matters, the Board of Governors authorized the Federal Reserve Bank of New York to lend to Fannie Mae and Freddie Mac, should that become necessary. Any lending would be collateralized by U.S. government and federal agency securities. In general, healthy economic growth depends on well-functioning financial markets. Consequently, helping the financial markets to return to more normal functioning will continue to be a top priority of the Federal Reserve.
‘The economy has continued to expand, but at a subdued pace’
“I turn now to current economic developments and prospects. The economy has continued to expand, but at a subdued pace. In the labor market, private payroll employment has declined this year, falling at an average pace of 94,000 jobs per month through June. Employment in the construction and manufacturing sectors has been particularly hard hit, although employment declines in a number of other sectors are evident as well. The unemployment rate has risen and now stands at 5.5.%.
“In the housing sector, activity continues to weaken. Although sales of existing homes have been about unchanged this year, sales of new homes have continued to fall, and inventories of unsold new homes remain high. In response, homebuilders continue to scale back the pace of housing starts. Home prices are falling, particularly in regions that experienced the largest price increases earlier this decade. The declines in home prices have contributed to the rising tide of foreclosures; by adding to the stock of vacant homes for sale, these foreclosures have, in turn, intensified the downward pressure on home prices in some areas.
“Personal consumption expenditures have advanced at a modest pace so far this year, generally holding up somewhat better than might have been expected given the array of forces weighing on household finances and attitudes. In particular, with the labor market softening and consumer price inflation elevated, real earnings have been stagnant so far this year; declining values of equities and houses have taken their toll on household balance sheets; credit conditions have tightened; and indicators of consumer sentiment have fallen sharply. More positively, the fiscal stimulus package is providing some timely support to household incomes. Overall, consumption spending seems likely to be restrained over coming quarters.
“In the business sector, real outlays for equipment and software were about flat in the first quarter of the year, and construction of nonresidential structures slowed appreciably. In the second quarter, the available data suggest that business fixed investment appears to have expanded moderately. Nevertheless, surveys of capital spending plans indicate that firms remain concerned about the economic and financial environment, including sharply rising costs of inputs and indications of tightening credit, and they are likely to be cautious with spending in the second half of the year. However, strong export growth continues to be a significant boon to many U.S. companies.
‘Inflation seems likely to move temporarily higher in the near term’
“In conjunction with the June FOMC meeting, Board members and Reserve Bank presidents prepared economic projections covering the years 2008 through 2010. On balance, most FOMC participants expected that, over the remainder of this year, output would expand at a pace appreciably below its trend rate, primarily because of continued weakness in housing markets, elevated energy prices, and tight credit conditions. Growth is projected to pick up gradually over the next two years as residential construction bottoms out and begins a slow recovery and as credit conditions gradually improve. However, FOMC participants indicated that considerable uncertainty surrounded their outlook for economic growth and viewed the risks to their forecasts as skewed to the downside.
“Inflation has remained high, running at nearly a 3.5% annual rate over the first five months of this year as measured by the price index for personal consumption expenditures. And, with gasoline and other consumer energy prices rising in recent weeks, inflation seems likely to move temporarily higher in the near term.
“The elevated level of overall consumer inflation largely reflects a continued sharp run-up in the prices of many commodities, especially oil but also certain crops and metals.2 The spot price of West Texas intermediate crude oil soared about 60 percent in 2007 and, thus far this year, has climbed an additional 50 percent or so. The price of oil currently stands at about five times its level toward the beginning of this decade. Our best judgment is that this surge in prices has been driven predominantly by strong growth in underlying demand and tight supply conditions in global oil markets. Over the past several years, the world economy has expanded at its fastest pace in decades, leading to substantial increases in the demand for oil. Moreover, growth has been concentrated in developing and emerging market economies, where energy consumption has been further stimulated by rapid industrialization and by government subsidies that hold down the price of energy faced by ultimate users.
“On the supply side, despite sharp increases in prices, the production of oil has risen only slightly in the past few years. Much of the subdued supply response reflects inadequate investment and production shortfalls in politically volatile regions where large portions of the world’s oil reserves are located. Additionally, many governments have been tightening their control over oil resources, impeding foreign investment and hindering efforts to boost capacity and production. Finally, sustainable rates of production in some of the more secure and accessible oil fields, such as those in the North Sea, have been declining. In view of these factors, estimates of long-term oil supplies have been marked down in recent months. Long-dated oil futures prices have risen along with spot prices, suggesting that market participants also see oil supply conditions remaining tight for years to come.
“The decline in the foreign-exchange value of the dollar has also contributed somewhat to the increase in oil prices. The precise size of this effect is difficult to ascertain, as the causal relationships between oil prices and the dollar are complex and run in both directions. However, the price of oil has risen significantly in terms of all major currencies, suggesting that factors other than the dollar, notably shifts in the underlying global demand for and supply of oil, have been the principal drivers of the increase in prices.
“Another concern that has been raised is that financial speculation has added markedly to upward pressures on oil prices. Certainly, investor interest in oil and other commodities has increased substantially of late. However, if financial speculation were pushing oil prices above the levels consistent with the fundamentals of supply and demand, we would expect inventories of crude oil and petroleum products to increase as supply rose and demand fell. But in fact, available data on oil inventories show notable declines over the past year. This is not to say that useful steps could not be taken to improve the transparency and functioning of futures markets, only that such steps are unlikely to substantially affect the prices of oil or other commodities in the longer term.
“Although the inflationary effect of rising oil and agricultural commodity prices is evident in the retail prices of energy and food, the extent to which the high prices of oil and other raw materials have been passed through to the prices of non-energy, non-food finished goods and services seems thus far to have been limited. But with businesses facing persistently higher input prices, they may attempt to pass through such costs into prices of final goods and services more aggressively than they have so far. Moreover, as the foreign exchange value of the dollar has declined, rises in import prices have put greater upward pressure on business costs and consumer prices. In their economic projections for the June FOMC meeting, monetary policy makers marked up their forecasts for inflation during 2008 as a whole. FOMC participants continue to expect inflation to moderate in 2009 and 2010, as slower global growth leads to a cooling of commodity markets, as pressures on resource utilization decline, and as longer-term inflation expectations remain reasonably well anchored. However, in light of the persistent escalation of commodity prices in recent quarters, FOMC participants viewed the inflation outlook as unusually uncertain and cited the possibility that commodity prices will continue to rise as an important risk to the inflation forecast. Moreover, the currently high level of inflation, if sustained, might lead the public to revise up its expectations for longer-term inflation. If that were to occur, and those revised expectations were to become embedded in the domestic wage- and price-setting process, we could see an unwelcome rise in actual inflation over the longer term. A critical responsibility of monetary policy makers is to prevent that process from taking hold.
“At present, accurately assessing and appropriately balancing the risks to the outlook for growth and inflation is a significant challenge for monetary policy makers. The possibility of higher energy prices, tighter credit conditions, and a still-deeper contraction in housing markets all represent significant downside risks to the outlook for growth. At the same time, upside risks to the inflation outlook have intensified lately, as the rising prices of energy and some other commodities have led to a sharp pickup in inflation and some measures of inflation expectations have moved higher. Given the high degree of uncertainty, monetary-policy makers will need to carefully assess incoming information bearing on the outlook for both inflation and growth. In light of the increase in upside inflation risk, we must be particularly alert to any indications, such as an erosion of longer-term inflation expectations, that the inflationary impulses from commodity prices are becoming embedded in the domestic wage- and price-setting process.
‘The new rules will help to restore confidence in the mortgage market’
“I would like to conclude my remarks by providing a brief update on some of the Federal Reserve’s actions in the area of consumer protection. At the time of our report last February, I described the Board’s proposal to adopt comprehensive new regulations to prohibit unfair or deceptive practices in the mortgage market, using our authority under the Home Ownership and Equity Protection Act of 1994. After reviewing the more-than 4,500 comment letters we received on the proposed rules, the Board approved the final rules yesterday.
“The new rules apply to all types of mortgage lenders and will establish lending standards aimed at curbing abuses while preserving responsible subprime lending and sustainable homeownership. The final rules prohibit lenders from making higher-priced loans without due regard for consumers’ ability to make the scheduled payments and require lenders to verify the income and assets on which they rely when making the credit decision. Also, for higher-priced loans, lenders now will be required to establish escrow accounts so that property taxes and insurance costs will be included in consumers’ regular monthly payments. The final rules also prohibit prepayment penalties for higher-priced loans in cases in which the consumer’s payment can increase during the first few years and restrict prepayment penalties on other higher-priced loans. Other measures address the coercion of appraisers, servicer practices, and other issues. We believe the new rules will help to restore confidence in the mortgage market.
“In May, working jointly with the Office of Thrift Supervision and the National Credit Union Administration, the Board issued proposed rules under the Federal Trade Commission Act to address unfair or deceptive practices for credit card accounts and overdraft protection plans. Credit cards provide a convenient source of credit for many consumers, but the terms of credit-card loans have become more complex, which has reduced transparency. Our consumer testing has persuaded us that disclosures alone cannot solve this problem. Thus, the Board’s proposed rules would require card issuers to alter their practices in ways that will allow consumers to better understand how their own decisions and actions will affect their costs. Card issuers would be prohibited from increasing interest rates retroactively to cover prior purchases except under very limited circumstances. For accounts having multiple interest rates, when consumers seek to pay down their balance by paying more than the minimum, card issuers would be prohibited from maximizing interest charges by applying excess payments to the lowest rate balance first. The proposed rules dealing with bank overdraft services seek to give consumers greater control by ensuring that they have ample opportunity to opt out of automatic payments of overdrafts. The Board has already received more than 20,000 comment letters in response to the proposed rules.
“Thank you. I would be pleased to take your questions.”
1. Primary dealers are financial institutions that trade in U.S. government securities with the Federal Reserve Bank of New York. On behalf of the Federal Reserve System, the New York Fed’s Open Market Desk engages in the trades to implement monetary policy.
2. The dominant role of commodity prices in driving the recent increase in inflation can be seen by contrasting the overall inflation rate with the so-called core measure of inflation, which excludes food and energy prices. Core inflation has been fairly steady this year at an annual rate of about 2%.
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My Note –
But none of the US budget figures include the Iraq war, the war in Afghanistan and countless other military and financial bailout funds that were used at the time? What were the real numbers? And, how could economic forecasters, experts, economists and financial /investment firm advisors have been so completely wrong on such a large scale? How is it that they could not see what was going to happen, especially those in the Treasury and Federal Reserve from 2007 to 2009? Why was it considered a matter of opinion or “rhetoric” in defining whether it was a recession, would be a recession or even whether there was really a problem in the economy or not? How is that possible?
A $500 Trillion dollar risky asset portfolio was held by Lehman? Currently there are over $600 Trillion dollars in credit default swaps and financial derivatives globally? Off-balance sheet accounting is still acceptable? Lack of transparency is still tolerated? There have been no financial regulations of corrections to the system, nor reform of financial regulations? Nothing has changed except that our futures are still at risk? I don’t get it.